Special Purpose Acquisition Company (SPAC) listings have experienced the glory of 2020 and 2021, these "blank check companies" targeting a variety of new economy companies, including many with a focus on PropTech companies, to tap into the fast-growing PropTech market. As a result, over the past two to three years, many promising PropTech companies have gone public to raise capital through this process, with many acquisitions and mergers involving multi-billion-dollar deals.
However, the performance of most PropTech companies has been disappointing, with many of them experiencing stock price declines of more than 50%, or even 80%, since their IPOs in 2021. At the height of the SPAC boom in 2021, investors and analysts are questioning the number of quality PropTech companies ready to go public in the market, and the author agrees to some extent that there may not be too many quality PropTech companies.
For example, SoftBank-backed mortgage provider Better.com has been postponing its planned IPO through SPAC after making headlines for laying off 900 employees through Zoom in 2021 after turning a $300 million profit to a $300 million loss.
Zillow, an online real estate trading platform, has also abandoned its iBuying business after losing nearly $1 billion in 3.5 years; Knock, a home buying platform, recently cancelled its plan to go public through SPAC and laid off about half of its staff; even PropertyGuru, Southeast Asia's largest online real estate platform, has also failed to make it through its IPO with Richard Lee-backed SPAC in March, with its stock price steaming by about 40%; Katerra, a construction technology (ConTech) unicorn, filed for bankruptcy after raising nearly $2 billion.
Regulators have strongly criticized PropTech companies, that were overvalued upfront but listed through SPACs, for plummeting in value after their IPOs, causing significant losses for many investors. In March 2022, the SEC announced proposals for more stringent regulation of the SPAC market, including enhanced reporting and disclosure requirements to provide investors with a fuller understanding of the SPAC process and the factors that affect its value.
There will also be increased liability for SPACs and their advisors to ensure more rigorous due diligence. Since then, major banks such as Goldman Sachs and Citigroup have suspended their new SPAC plan. These rules will integrate SPACs more closely with traditional IPO methods, thus preventing some less qualified PropTech companies from entering the public capital markets in a relatively easy way. While a few PropTech companies such as residential rental platform Appreciate, have announced plans to go public through SPACs, the number of such IPOs has declined significantly.
After a tumultuous year, PropTech companies are facing a more challenging economic environment with inflation, rising interest rates and a potential recession. The only PropTech-themed and U.S.-traded ETF (US: HHH) stock price has dropped for nearly 50% since its IPO last October.
Therefore, it seems that PropTech companies are facing a long period of business consolidation. Anyhow, PropTech companies must demonstrate a healthy and clear path to profitability and use real hard and soft skills to achieve an IPO.